Does asset redeployability affect corporate investment and equity value?

Yuen Rong, Cunzhi Tian, Lifang Li and Xinwei Zheng

International Review of Economics & Finance, 2020, vol. 70, issue C, 479-492

Abstract: We explain the effect of asset redeployability on corporate investment and equity value in the framework of contract theory with asymmetric information. Our theoretical study suggests that asset redeployability tends to enhance a financially-constrained firm’s investment level, investment-cash flow sensitivity and equity value, but does not have such effects on an unconstrained firm. Empirically, we use 2318 Chinese listed companies as sample over the period 2008–2014 and find evidence confirming theoretical predictions. Our findings demonstrate that asset redeployability is important in determining the corporate investment and equity value of constrained firms, thus managers should be aware of the asset characteristics and liquidation values when making asset transactions.

Keywords: Asset redeployability; Investment; Investment-cash flow sensitivity; Equity value (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:70:y:2020:i:c:p:479-492

DOI: 10.1016/j.iref.2020.06.039

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